HedgeWorld recently published an article on their subscription website (sign up for free at www.hedgeworld.com) detailing the results of a survey conducted by business media firm Terrapinn Ltd., regarding the increased use of 130/30 strategies. The conclusion of the study was that 130/30 strategies are no longer just a fad but are slowly becoming an integral part of an investment portfolio. The biggest concern among those polled as to why they have not implemented the strategy into their portfolio is due to manager selection; many feel they don’t have confidence in the manager’s shorting ability. Another interesting fact in the survey was that a majority of managers who offer 130/30 strategies do so because they feel it creates a competitive advantage.
At Innovest, we are currently conducting research on the viability of 130/30 strategies. We believe they very well may have merit and a place in a portfolio. However, with most track records less than three years long, it is difficult to make a complete analysis. As these strategies gain traction and there are more data points to analyze (especially the volatile months of July and August 2007), we will form more of an opinion as to if and when we may advocate implementing them into client portfolios. As with any investment we analyze, it is important to not only look just at performance but at the team managing the strategy. Since many “long-only” shops don’t have a great deal of experience shorting, it is extremely important to understand the shorting process and the inherent risks it brings.
Please check back often to see our continuing thoughts on 130/30 strategies.